Government May Thaw on FDI Issue for Retail

India's government may make its first tentative steps to opening up the organised retail sector to foreign companies, a reform seen as dealing with massive supply bottlenecks that have kept inflation stubbornly high, among speculation that it may issue a discussion paper on further opening up retail, currently restricted to wholesalers, according to media reports.

But many obstacles remain and the ministry officials said that the details of such a proposal are far from decided. It may be just one of a series of discussion papers over the coming months to test the waters with different stakeholders to lift investment caps in sectors eagerly watched by investors, including retail.

Global multi-brand operators such as Wal-Mart and Carrefour have long eyed India's fast-growing but restrictive $450-billion retail sector, which has so far been dominated by mom-and-pop stores, with organised retail accounts for only 6 % of the total market.

The commerce and industry ministry reportedly may propose 100 % FDI in multi-brand retail, but with local sourcing requirements. "It is just speculative. We have only just released the paper on defence. Give that some time," said a source with good knowledge of the FDI policy in the commerce ministry.

At present, India's retail sector is largely closed, with 51 % FDI allowed only in single-brand retail. Wal-mart and other foreign players have argued for opening up retail to reduce supply chain inefficiencies in the agriculture sector. With food price inflation still hovering above 16 %, this could be one of the reasons for the talk on the discussion paper on retail.

Wal-mart is already present in India through cash-and-carry stores supplying in bulk to fuel Indian giant Bharti's retail stores, but it wants to enter India's retail market. However, the actual carrying out of the proposed paper, which does not go well with the leftist parties, is not going to be easy. It needs the support of other ministries like consumer affairs and finance prior to it being discussed in the cabinet.